Woolworths executive bonuses cut after workers underpaid up to $300m

Top executives at supermarket giant Woolworths will have their bonuses cut after the retailer admitted it had underpaid nearly 6000 of its employees as much as $300 million.

Both sides of politics condemned the company on Wednesday as Woolworths chief executive Brad Banducci said it was "deeply sorry" for what is one of the largest ever public underpayment cases.

In a statement to the market on Wednesday, the retailer revealed it had failed to pay about 5700 of its salaried workers, mostly department managers, across its supermarkets and Metro stores in line with the General Retail Industry Award.

The underpayment was first identified by workers in February as the company implemented its newest enterprise agreement, with inconsistencies identified in workers' overtime levels under the award.

Underpayments could track back as far as 2010, and the company estimates the total cost of remediation to be between $200 million and $300 million.

Salaried workers at the company's other divisions including Big W, Dan Murphy's and BWS may also be affected. A total of 19,000 salaried workers are employed by Woolworths and the company said former workers may have also been underpaid.

Mr Banducci said he "fully expected" the underpayments to cut into his and Woolworths executive team's bonuses for the coming financial year. Last financial year, Mr Banducci earned $4 million in bonuses on top of his $2.66 million salary.

"We apologise to our team, we're going to make it right, but it's a very complex issue," he said.

"I fully expect to have a conversation with the board on the consequences of this and I fully expect it will be impacting bonuses for myself and maybe there will be other things that come out of it."

Mr Banducci said while the company was focused on resolving the issue with its workers, change to Australia's industrial relations system was needed.

Woolworths CEO Brad Banducci.Credit: Janie Barrett

"This is a very complex issue which needs an industry-level dialogue on it. At the right time, we'd like to come back and talk about the lack of flexibility in [awards] when interpreted literally," he said.

Fair Work Ombudsman Sandra Parker said the watchdog would hold the company to account for breaching workplace laws.

"Lately, we are seeing a disturbing number of large corporates publicly admitting that they have underpaid their staff. Some of these matters go back many years and several comprise millions of dollars owed to workers. This is simply not good enough," Ms Parker said.

Ms Parker said she intended to take the issue of wage compliance up with company boards around the country, saying corporate Australia was "on notice".

Federal Industrial Relations Minister Christian Porter lashed Woolworths saying the government had "zero tolerance" for underpayment reiterating its commitment to introduce criminal penalties for employee exploitation.

"The case should serve as a timely warning to all employers that they risk significant penalties under the Fair Work Act if they fail to get their payment systems right," he said.

Opposition industrial relations spokesman Tony Burke said Labor would immediately move to establish a new wage theft inquiry.

"Scott Morrison does not take wage compliance seriously. And by failing to act on this issue, his government has sent the message to businesses that they don’t need to take it seriously either," Mr Burke said.

A 'form of wage theft'

Retail and Fast Food Workers Union (RAFFWU) Josh Cullinan said the underpayments were a "form of wage theft".

Mr Cullinan pointed to the recent underpayments by fellow retailer Wesfarmers as an indication issues were rife within the sector.

"Everywhere we touch there are substantial ongoing underpayments in some form or another. It's no surprise to us these sorts of issues are continuing and will continue in the foreseeable future," he said.

"Woolworths, had they been able to get away with this, would have saved hundreds of millions of dollars."

Business Council of Australia chief executive Jennifer Westacott said it was right that Woolworths had apologised for the error, but said the complexity of the industrial relations system meant it was easy for large companies to "inadvertently" pay the wrong rate.

"Clearly the company has rightly apologised. They found it. They are going to fix it. They have apologised," she said.

"We do need to make sure we aren't creating a [industrial relations] system that is so complex - 122 awards, multiple agreements, multiple clauses - that is vulnerable to inadvertent payroll mistakes."

Ms Westacott said the BCA supported strong penalties for what she called "purposeful wage theft", which she said was a "very serious issue that should be cracked down on as hard as we can".

"But at the same time, let's not make system to complicated."

Woolworths, had they been able to get away with this, would have saved hundreds of millions of dollars.

RAFFWU secretary Josh Cullinan

Woolworths' review is expected to take until the end of the financial year, however, the company has said it will begin to backpay workers before Christmas, including interest and lost superannuation.

On a per-worker basis stretching back to 2010, and at the higher end of the underpayment range, each worker may have been underpaid as much as $5200 per year. Woolworths shares fell following the news, closing down 1.4 per cent at $37.20.